Eli Lilly to use GLP-1 windfall to fund M&A and diversify pipeline

Jacob Van Naarden is busy.

In addition to running Eli LillyOncology business, he is now responsible for finding the next drugmaker’s opportunities as head of business development. And Lilly, now the world’s largest pharmaceutical company, is more hungry than ever for deals.

“The financial strength of the company right now, driven mostly by the weight loss business, is very strong,” Van Naarden said in a discussion at the annual meeting of the American Society of Clinical Oncology. “We have this almost identical opportunity to regenerate that capital across all of our disease areas to not only fuel growth for the company for decades to come, but also to help more patients with all kinds of diseases, so we’re using that strategy.”

Not even midway through the year, Lilly has announced that it will spend more than $10 billion and possibly $25 billion on eight acquisitions. Throughout last year, Lilly spent nearly $4 billion on nearly 40 deals.

Lilly’s trading continued Wednesday with a $1.9 billion partnership with RNA-editing company Ascidian Therapeutics to develop drugs for kidney disease.

The spending reflects a deliberate change in the way Lilly does things now that the company is bigger and more valued than ever. The company’s market capitalization now stands at nearly $1 trillion, up from $190 billion by 2021, according to data from LSEG. Lilly is the first healthcare company to join the trillion dollar club, which is owned by technology firms.

In the past, the drug maker liked to bet on early drugs that were not cheap because they were dangerous. Now, it’s using the windfall from its GLP-1 drugs like Mounjaro and Zepbound to pursue experimental drugs that might work — and carry hefty price tags because of it.

“These things are drugs,” Van Naarden said in a separate interview from his Stamford, Connecticut, office. “How big are they going to be? What’s the development plan? When are they going to be approved? Like, I don’t know all that yet. Obviously we have ideas, but you can see enough to say OK, this is real, and we can write down a higher price than we’re paying for something real up front. So that’s been a big part of where we’ve been putting a lot of instage-volume at the beginning of the strategy.”

Van Naarden said his boss, Lilly CEO Dave Ricks, talked to him last week about leading the business in addition to his larger job as head of Lilly’s oncology business. The company wanted to sharpen its marketing skills and begin to expand its reach beyond the original bets that Lilly preferred to focus on.

He started doing this trick at the beginning of the year.

Lilly’s planned acquisition of Centessa Pharmaceuticals, announced in March, could reach $7.8 billion if the company meets certain milestones for its experimental drugs for sleep disorders such as narcolepsy. That would make it Lilly’s second-largest deal after the company’s $8 billion acquisition of Loxo Oncology in 2019. Van Naarden was chief executive at Loxo at the time.

Although big for Lilly, the deals are worth about $8 billion it is still small compared to the deals of other big pharmaceutical companies. It raises the question of how big Lilly can be.

Van Naarden does not want to limit the use of size arbitrarily. He says it’s about how compelling the science is and how great the opportunity is for patients and Lilly.

More deals have been announced this year they fall under Lilly’s current specialties of oncology, neuroscience, cardiometabolic health and immunology. Others, like Lilly’s recently announced acquisition of three vaccine companies, will take the company into new territory.

“We’re looking at all kinds of things that don’t fit neatly into one of these four buckets, so don’t be surprised if we still have some things that you know maybe don’t fit well in what we’ve done historically,” Van Naarden said this week at ASCO. “If you see it, it means we’re excited, and we think we can have a big impact.”

Is something off the table?

“No,” he said, “it’s not.”